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Ms. Kavita SharmaSTEVEN ADAIR MACDONALD & ASSOCIATES, P.C.870 Market Street, Suite 500San Francisco, CA 94102Telephone: 415-956-6488Fax: 415-956-8698www.samlaw.net

Ms. Kavita Sharma is a seniorassociate at the San Francisco law firm Steven MacDonald & Associates, P.C. Ms. Sharma spearheads the General Litigation Department at the firm and serves as an advisor to the Unlawful Detainer Department. Since 2006, Ms. Sharma’s practice has focused on residential property disputes including landlord/tenant, partition and HOA litigation. She currently serves on the Executive Committee of the Real Property Law Section of the CA State Bar. Ms. Sharma has given numerous presentations to real estate professionals regarding landlord/tenant law, including several MCLE programs for the CA State Bar. Ms. Sharma also serves as litigation counsel to a nationwide underwriting corporation.

What is an illegal unit?Typically, such a dwelling is one that was built without permits or one in which the rooms were constructed with the blessing of the Department of Building Inspection but with the kitchen or stove put in afterwards. Usually the way to determine this is by counting the number of units in the building and comparing this with the "Certificate of Occupancy" issued by the City. However, further permit history may have to be performed. The benefit for the landlord of owning a building with an in-law unit is the extra cash flow it produces. This article will explore some of the the risks of such an endeavor and how they can be best managed.What are the problems?The tenant can be evicted from the illegal unit and the landlord may have to make them a stiff relocation payment (presently a little over $5,200 per tenant, maxing at three tenants, plus possible extra money for disabled or elderly). There are also some theories that tenants can claim as justification for the repayment of part or all of the rent that they paid while they were living in the unit. Additionally, there is the potential for habitability claims since, quite often, the unit, itself, does not conform with building code requirements. Sometimes there are serious safety lapses due to the fact that there is lack of a second exit. This can result in an affirmative lawsuit by the tenants for these conditions. Sometimes the landlord has the proper type of insurance and sometimes not. The cost of defending these lawsuits can therefore often be considerable. It is important to note that when selling the building the non-complying unit should be properly disclosed as an illegal unit without any attempt to embellish it. If the building inspector issues a Notice of Violation, the owner will likely be forced to remove the unit from residential use.How should the landlord properly terminate such a tenancy?If the building inspector has issued a Notice of Violation, under the local San Francisco ordinance the landlord will need to obtain permits and issue a proper eviction notice. This will usually require sixty days notice (30 days if the tenancy is a year or less in duration), and payment of the relocation money mentioned above. Typically there is no legitimate defense to this case since the landlord seemingly has no choice in the matter, so these cases are rarely contested. The tenant can still bring his affirmative claims. In some cases, the tenant will have breached the rental agreement and this may allow the landlord to sue them from nonpayment of rent or nuisance. Interestingly enough, the courts will not enforce the terms of such a

rental agreement, because it is considered an illegal contract. However, appellate court decisions have held that the landlord should be able to recover possession of the premises, i.e., terminate the tenancy. Therefore the landlord could bring a nonpayment of rent case, and certainly a nuisance case, and recover the unit, while most likely not recovering a money judgment in his or her favor. In that scenario, the landlord could avoid paying the relocation money to the tenant. Of course, each case depends on its merits, and somtimes the landlord may agree to pay some voluntary relocation money to the tenant to avoid the cost of trial.How an owner may avoid being sued?First of all, the landlord should obtain an appropriate insurance policy for an income property, rather than a homeowner's policy. The owner should also be sure that there is coverage for claims such as "wrongful eviction" and other broad forms of liability. It could also be helpful, despite the downsides to it, if the landlord initially disclosed to the tenant that she was renting an illegal unit. That way, at least, the tenant would not be able to claim that she was defauded into renting an illegal unit. It is common that utility bill disputes arise in these situations because the tenant is not afforded her own meter. These minor disputes can erupt into major litigation. The same can also happen with security deposits. In this particular scenario, the landlord should be careful to avoid disputes and refund the deposit in full. We also often see personality disputes, since sometimes the landlord is living upstairs and the tenant right below, and noise and even cooking smells can easily permeate from one unit to the other. Often no one is to blame for this since the extra unit was not built into the original design for the structure. It is also helpful if the landlord is careful selecting the tenants. Getting a personal recommendation from a friend or family member is helpful. In general, a landlord is best advised to treat his tenants with respect and understanding. In particular, the landlord should understand that renting such a unit puts him or her in jeopardy of some or all of the consequences outlined above. Like in most personal and business relationships, some effort at keeping peaceful communication in place may very often preserve the relationship as a healthy and profitable one for the owner, as well as for the tenant.

**This article is not meant to encourage owners to violate any local or state building codes, planning codes, housing codes and/or zoning laws. This article is meant to give information regarding the nature of in-law or illegal units and the legal pitfalls an owner faces.**

"I would never use any other real estate lawyer!"

-Mr. W.K. Kuan

STEVEN ADAIR MACDONALD & ASSOCIATES, P.C.870 Market Street, Suite 500 San Francisco, CA 94102

Telephone: 415-956-6488 Fax: 415-956-8698

www.samlaw.net

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"[Steven MacDonald's] staff and attorneys are probably the best collection of landlord-tenant legal dispute specialists in San Francisco. Kavita Sharma... just worked miracles for my case (which was tricky and involved complex issues)... Over the years I have brought more than five cases to this firm and I got a satisfactory result every single time. "

-Mr. J. Fischer

Real Estate LawOur attorneys assist home, commercial, and real estate investment property buyers. We litigate cases of breach of contract, partition, HOA and adjoining owners disputes.

(Testimonial does not constitute a guarantee or prediction of the outcome of your legal matter.)

Landlord-Tenant LawThe largest part of our legal practice involves resolving disputes between landlords and tenants in the San Francisco Bay Area involving evictions and wrongful evictions resulting from lease breaches or landlord prerogatives.

We have a separate Unlawful Detainer department to handle all eviction cases.

Our nine lawyers bring decades of experience in real estate law to the negotiation table or the courtroom. We pride ourselves on finding creative solutions to complicated scenarios. We use a variety of conflict resolution strategies to help our clients achieve the best possible outcome for the least cost, including mediation, negotiation, and litigation.